Netflix Antitrust

Netflix Antitrust, A federal judge in California has dismissed a class action against Netflix that alleged the online movie retailer had struck an illegal “market allocation” agreement with Walmart. On Tuesday, U.S. District Judge Phyllis Hamilton handed Netflix a victory on summary judgment, finding that the plaintiffs couldn’t show any collusive agreement.

The dismissal cuts short a trial that was tentatively scheduled for January.

The plaintiffs brought their claims to federal court in 2009, pointing to an agreement made between Netflix and Walmart four years earlier.

At the time, Blockbuster had just entered the DVD online rental market and rumors circulated that Amazon would soon do the same. Netflix approached Walmart in a purported effort to stave off the perceived Amazon threat. At first, the talks went nowhere, but then Walmart decided to exit the DVD rental business. In 2005, the two companies reached a deal on a so-called “Promotion Agreement,” whereby existing Walmart DVD rental customers would be transitioned to Netflix.

Amazon didn’t jump into the DVD business, and Blockbuster later flopped, leading eight individuals to lead a class action lawsuit that alleged that antitrust behavior between Netflix and Walmart had led to higher prices. The plaintiffs estimated that damages could be as high as $654 million.

But now, Judge Hamilton has curtailed a trial that was scheduled to feature Netflix CEO Reed Hastings as well as former top media executives from Amazon, Walmart and Blockbuster. She ruled that the plaintiffs simply couldn’t show that the “Promotion Agreement” was illegal. According to the decision:

“The Promotion Agreement on its face discloses an agreement by both parties to undertake cross-promotional efforts with respect to each other’s complementary online DVD rental and sales services, in light of Walmart’s independent decision to exit the DVD rental market. Not only does the agreement expressly acknowledge the ‘independent nature of Walmart’s decision to exit the market, but it furthermore expressly states that Walmart is free to re-enter the same market. Under these circumstances, the court cannot agree that the agreement on its face reflects a blatant agreement to eliminate Walmart from the online DVD rental market as a form of market allocation.”